Consider the potato chip production process at a company such as Old Dutch Foods. Old Dutch uses a continuous flow technology that is suited for high volumes of product. The Calgary plant uses between 340,000 and 410,000 kilograms of potatoes each day. The plant operates three shifts per day. It takes 30 minutes to completely produce a bag of potato chips from the raw potato to the packed end product.

1. What product and process characteristics of potato chips dictate the cost accounting system used? Describe the costing system best suited to Old Dutch.

2. What product and process characteristics dictate the use of an ABC system? What implications does this have for Old Dutch?

3. When beginning inventories are present, product costing becomes more complicated. Estimate the relative magnitude of beginning inventories at Old Dutch compared to total production. What implication does this have for the costing system?